Money news, advice and predictions for savers and spenders.
By Jeremy Gates
Shares are booming again and some banks are raking in huge profits - is the financial meltdown over?
London's FTSE-100 share index has soared more than 30% in six months, while some funds invested in overseas equities have jumped more than 40%.
And this week's bumper profits announcements from HSBC and Barclays prompted the BBC's financial expert Robert Peston to declare that "the worst banking crisis in 100 years" is over.
This share-price rally has been global, with peaks for the year seen in New York, across Asia and Europe. Even my clapped-out fund in Dublin got off the canvas to double in value since its low of 2008.
All this is good news for millions of workers in pension funds (of the defined contribution variety) which rely heavily on the stock market - and for any small investors brave enough to buy after the global collapse which sank Lehmann Brothers and HBOS in September/October 2008.
Britain's army of small investors has seen the value of its shares jump £8 billion to a total £138 billion since the end of May, according to Capita Registrars. Figures in mid-August are expected to show them active in the market again.
But where does the rally go from here?
If Peston is right about a "once in a century" crisis, it's a fair bet that shares will eventually go much higher than they are today.
Despite the euphoria, however, formidable forces threaten to pull London shares back down.
They include the dire condition of our economy: huge pension-fund deficits, which firms plug from profits; spiralling personal debt; alarming Government borrowing; and rising unemployment.
After the 2010 General Election, steeply rising taxes - inevitable whoever wins - will slash consumption. A serious Middle-East crisis is quite possible over Iran's nuclear bomb.
No wonder Tony Ahearne, financial advisor and director of Moneyspider.com, which compares performance of managed funds, says that many clients are still not keen to invest.
"They see this as a 'dead cat bounce', with share-price falls likely in September/October. My belief is that Far Eastern shares will be first to recover, followed by the US, Europe and UK last, because of our severe structural problems.
"This is the time to spread other investments - cash ISAs, gilts, bonds - alongside equity holdings, although many who had the courage to buy shares in October-November have made loads of money."
Nick Raynor, investment advisor at The Share Centre, is similarly cautious.
"We expect a correction in the market shortly, so we advise clients with short-term profits on speculative, volatile stocks like banks and mining companies to switch into utilities - like water companies United Utilities and Severn Trent, National Grid and Centrica, which all provide yields in excess of 6% at the moment," Raynor says.
"Vodafone, too, yields 6%-plus, much better than cash on deposit."
Depending on personal attitude to risk, shares should be part of a long-term savings pot to boost income from State and private pensions.
They can be held within a personal pension plan (SIPP), or enjoy tax advantages of an ISA. The ISA limit for the over-50s rises to £10,200 per year in October, giving greater scope to take income and gains from shares tax-free.
But the investment game has changed in two years: small investors need to be sure they are not going to lose a fortune too, particularly if they are near retirement.
Even a successful fund like Artemis UK Smaller Companies, for instance, saw its value halved during 2008. Few small savers can afford calamities on that scale.
So the best approach from here is probably to go global: many funds in Asia and the Emerging Markets have had good runs, while others back the US on the basis it never stays down for long.
There is also a growing consensus that China is more likely to kickstart global growth than anywhere else.
Bristol-based financial advisor Hargreaves Lansdown (HL) has compiled two global portfolios, one for income and one for growth.
The growth portfolio includes Aberdeen Emerging Markets, Artemis Strategic Assets, Jupiter Financial Opportunities, M&G Global Basics and Neptune Global Equity. About 20% of that portfolio will be invested in the UK.
The income portfolio (nearly 70% UK-based) is Artemis Income, Bloxham Global Equity, First State Global Listed Infrastructure, Invesco Perpetual Income and JO Hambro Equity Income.
For regular investors, minimum monthly investment is £50 per fund per month, total £250. Initial charges are minimal, with annual charges also kept as low as possible.
"Although a 10% fall in London is perfectly possible in the next few months, we see markets at this level as good value for the long term," says HL investment manager Ben Yearsley.
"They are not cheap, not expensive. Regular investors can buy now, or hold money back to come in more strongly at lower levels, but any investment of this type must be viewed over a 5-10 year timespan."
The Share Centre, too, launched a new initiative on June 1 - Platinum 120, for investors who may have no more than £10 per month to spare for equity investment.
It narrows down the choice of more than 3,500 managed funds to just 120. Investors are promised no purchase commission on all funds and no initial charge on almost 80% of the funds in the list, so £50 invested is £50 working on their behalf in the markets.
Platinum 120 therefore enables small investors to avoid initial commission charges up to 5% on direct investments with a fund manager. Thereafter, annual dealing charges are in the 0.5%- 1.5% range.
One fund currently on Platinum 120 is the BlackRock Absolute Alpha Fund, which uses hedge-fund techniques to produce returns exposed to less volatility than those of a traditional fund, and should profit from falling markets as well as rising ones.
The attraction of both these concepts is that they minimise dealing costs. That could be important if, as seems likely, we are entering a period of flatter share prices.
:: Information: Hargreaves Lansdown (0117 900 9000 and www.H-L.co.uk); The Share Centre (01296 414 141 and www.share.com); www.moneyspider.com (01784 264 210).
Poundnotes
:: If the Government carries out its threat to stop payments to 90% of 2.6 million people claiming incapacity benefit when claims are re-assessed in 2010-2013, households could be badly exposed if illness or accidents stop them from earning a living, says Paul Hudson, chief executive at Cirencester Friendly Society.
"Income-protection insurance is designed to replace a sizeable proportion of your pre-disability gross salary to help you meet financial commitments when illness or accidents stop you earning a living," he says.
"If you are one of those who think the State will provide, think again and find out about the benefits of an income-protection contract."
:: Fixed-rate mortgages are more expensive from nationalised and part nationalised banks - "The Bank of Gordon" - claims Francis Ghiloni at realpricecomparison.com, a free online whole-of-market mortgage service.
Ghiloni says borrowers opting for a fixed-rate £150,000 mortgage with one of these part-nationalised banks could find themselves £105 a month or £1,260 per year worse off than if they had taken a 'best buy' from rivals like Abbey (two-year fix at 3.98%), West Bromwich BS (4.54% over three years) and Co-operative Bank (4.99% over five years).
:: If financial institutions want savers to commit cash for longer periods, they have to offer premium rates of interest over and above the Bank of England Base Rate of 0.50%, says Darren Cook at Moneyfacts.co.uk.
He has found that of 2,265 savings accounts available on June 30, only 55.3% paid above the Bank of England minimum.
"The savings report confirms that the average long-term, fixed rate is 3.51%, which is one of the contributing factors why we are seeing higher mortgage rates for new borrowers," says Mr Cook.
:: Savers fed up with poor interest rates on their money might consider the attraction of investment trusts focused on income, says James Saunders Watson, head of sales and marketing at fund manager JPMorgan.
He's referring to the Mercantile Investment Trust, which just happens to be managed by JPMorgan. It produced a yield of 4.6% last year and has just paid its first quarterly dividend of 6p for this new financial year.
"The unique structure of investment trusts allows boards to retain up to 15% of the trust's annual income. As a result, Mercantile IT has been able to build up considerable revenue reserves during rising markets, and shareholders now reap the benefits of this," says Saunders Watson.
Other investment trusts maintaining dividend levels are JPMorgan MidCap and JPMorgan Claverhouse, which paid annual dividends of 16.5p and 20p respectively in the last financial year.
:: High-five savers:
Phone No Rate Account Period Deposit Interest paid
West Bromwich BS www.westbrom.co.uk 5.45% (F) E Bond 32 31/07/14 £5,000 Yly
Barnsley BS www.barnsley-bs.co.uk 5.40% (F) Online Bond 30/09/14 £100 Yly
Aldermore 01372 736700 5.40% (F) Fixed Rate Bond Five Year Bond (P) £10,000 Qly
United Nat'l Bank 0800 218 2266 3.50% Three Month Gold Deposit Three Months £1 Half-yearly
Manchester BS 0161 923 8015 3.26% Premier ISA 45 Issue 1 45 Days £1,000 Yly
Nottingham BS 0845 155 6330 3.15% Postal Access 50 50 Day (P) £1,000 Yly
:: Top-five borrowers:
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 2.49% discounted for two years 60% £249 Yes
First Direct 0845 610 0100 3.09% variable for term 80% £999 Yes
Co-operative Bank 0800 633 5286 3.24% to 30/09/12 75% £995 Yes
Loughborough BS (FTB) 01509 610707 3.39% for two years 80% £449 Yes
First Direct 0845 610 0100 3.69% for term 75% £299 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
